Assessing Strategic Risk

In recent decades, subjective probabilities have been increasingly
applied to an adversary's choices in strategic games (SGs). In games
against nature (GANs), the subjective probability of a state can be
elicited from lotteries yielding utility 1 if that state obtains, 0 otherwise.
But in SGs, making such a lottery available changes the game,
and so the players' incentives. Here, we propose a definition of subjective
probabilities in SGs that uses actually available strategies
only. The definition applies also to GANs where the decision maker's
options are restricted. The probabilities that emerge need not be
unique, but expected utilities are unique. (JEL D81)